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Arch Coal merger consolidates coking space

Things were already looking tight in the coking coal world
before Arch Coal decided to pay $3.4 billion for International Coal
Group. The deal pays International Coal (
ICO
,
quote
) shareholders a 32% premium over Friday's close and will create
the second-biggest U.S. supplier of metallurgical coal. As the
buyer, Arch (
ACI
,
quote
) is taking a bit of a short-term beating in the market this
morning, but take a look at the long-term prospects here.
Metallurgical or "coking" coal burns cleaner than grades of coal
normally assigned to create heat and run power plant turbines. This
makes it invaluable for the fabrication of steel. However, it is
also fairly rare at this point, which has driven prices up this
year and motivated deals like this. This merger will be a boost to
the entire sector and lift valuations that could already have been
rationalized at their previous levels. Remember, the coking coal
space is the key to steel, along with iron ore -- in which case
VALE
(
quote
) is the name to watch. Higher coal prices ahead are unlikely to be
beneficial to members of the steel group, to put it mildly. Other
players in the coking coal world: Massey Energy (
MEE
,
quote
) and in Russia, integrated steel maker and coal miner Mechel (
MTL
,
quote
).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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